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Pearse Trust Blog
Current Tax Policies in Mexico

Current Tax Policies in Mexico

Mexico Obrader

Mexico Obrader

Andrés Manuel López Obrador won a landslide victory in Mexico’s general election in July 2018 on a platform of populist policies, including increased public spending. However, the president-elect has promised tax stability as opposed to reform. The incoming government’s tax and trade policies are summarised here.

Tax

Obrador has repeatedly stressed his commitment to keep taxes on hold. As such, no increases in taxation are planned. However, it also means that tax cuts are likely to be few and far between as well.

Arguably Obrador’s flagship tax policy is the reduction of value-added tax (IVA) in the Mexican states bordering the United States. Under this measure, the rate of VAT will be cut from 16% to 8%.

The incoming government also intends to reduce the income tax (the Impuesto Sobre la Renta, or ISR) in the border states to 20%. Currently, the ISR is progressive up to a top rate of 35%.

The proposals are intended to improve the economic prospects of the states and establish formal jobs to reduce the size of the grey economy. They would be effective from 1 January 2019.

Another possible tax measure that could be introduced is a tax amnesty. While this does not appear to be part of Obrador’s official platform, local media reports suggest the president-elect hasn’t ruled it out.

On assuming the presidency on 1 December 2018, Obrador will be obligated to submit his economic plan for the fiscal year 2019 for approval by the lower house of parliament no later than 15 December. Details of the new government’s fiscal plans will then become clearer. Parliament must approve the plan by 31 December.

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NAFTA

In the interest of maintaining economic stability and certainty, Obrador has promised to honour updates to the North American Free Trade Agreement (NAFTA) between Mexico, the United States and Canada that were preliminarily agreed earlier this year.

Under the agreement in principle reached by the US and Mexico on 27 August 2018, both countries have committed to maintaining tariff-free trade in industrial, agricultural, and digital goods.

According to fact sheets released by the US Trade Representative's Office, the new agreement maintains duty-free treatment for goods originating in either country. It also maintains the prohibition on export duties, taxes, and other charges and the waiver of specific customs processing fees.

Tariffs on agricultural products traded between the United States and Mexico will remain at zero under the revised agreement. In addition, the agricultural chapter is expanded to cover all biotechnologies, including new technologies such as gene editing.

In addition, the agreement in principle prohibits customs duties and other discriminatory measures from being applied to digital products distributed electronically, such as e-books, videos, music, software, and games.

Negotiators from Canada and the US reached a deal on a modernised trade agreement on 30 September 2018. The updated agreement will also no longer be known as NAFTA, but the United States-Mexico-Canada Agreement (USMCA) instead.

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